03.01.2023 Buying Tips

Why Now Could Be The Perfect Time To Upsize To Your Next Property

Why Now Could Be The Perfect Time To Upsize To Your Next Property

Many would-be upsizers are holding off making their next property move until the real estate market changes.

We think that could be a mistake.

Many would-be upsizers are holding off making their next property move until the real estate market changes. We think that could be a mistake.

Instead, today’s flatter market conditions could actually be the very best time to upsize in Sydney’s eastern suburbs. We show you why.

How the pandemic drove people to upsize

From mid-2020 until the end of 2021, Sydney experienced a prolonged property boom that saw the city’s median dwelling value rise by over 30%, according to CoreLogic.

The main reasons for this were that interest rates were low and the COVID-19 pandemic encouraged many people to think about what they wanted from their property. With more people spending a lot more time from home during lockdowns, space became more important than ever.

As a result, we saw a lot of people looking to upsize, taking the next step on their property journey by moving into a new home. As around 80% of home buyers are upsizers, this had a dramatic impact on property prices, with demand way outstripping supply.

Rising interest rates causing people to hold off

Since then, of course, we’ve seen the RBA implement a series of rises that took the official cash rate from just 0.1% to 3.35%, which is much closer to the post-1990 average of 3.84%). This had a dramatic effect, especially on people looking to buy a larger, more expensive home.

That’s because when people upsize, they often need to finance any gap between their current home value and the new home value. As that involves taking out a larger mortgage, rate rises have had a more dramatic impact on these buyers than others.

For instance, if you were to take out a 30-year $1 million principal and interest home loan when interest rates were 2%, your monthly repayments would be around $3,700 a month; at 6%, those monthly repayments would go to almost $6,000 a month.

That’s a massive difference to anyone’s bottom line – and the main reason we’re seeing less activity in the market right now.

Opportunity from perceived adversity

It’s natural for many people to be cautious at times like these. However, if you’re worried about upsizing in the current market conditions, we think you need to look beyond rising interest rates and consider that times like these are actually better ones in which to upsize.

In the hot market of 2021, buyers were gripped by a fear of missing out. This led some to offer above the odds to secure a home or otherwise settle for second best. Less competition in today’s market means you can take more time to reach a decision. It also means you have a better chance of securing the right home for your next move.

Besides, in a flatter market, you often end up paying less to make a move. That’s because the gap between property values tends to narrow.

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Say, for instance, your current home is worth $2 million, and the one you want to move into is worth $4 million – a gap of $2 million. If the price of both falls by 10% your home becomes worth $1.8 million, but the one you want to move into is now worth $3.6 million – a gap of $1.8 million.

That means there’s a smaller gap to finance, and you can move up the property ladder for less – potentially offsetting the rise in interest rates.

Besides, in the long term, Sydney property tends to rise in value. In fact, the average annual price rise over the past 46 years has been 7.9% according to ABS data. That’s despite any short-term slumps.

Top-down or bottom up?

It’s likely that this flatter market will change too, and that when we have a little more certainty around interest rates, which we may see soon, we’ll start to see more activity. But we also believe two other factors could give the market a push.

First, while the market in family homes has been more subdued over the past 12 months or so, the prestige market has stayed remarkably strong. Here in Sydney’s eastern suburbs, we saw street and suburb records constantly being beaten throughout 2021.

There are signs that this strength will continue throughout 2023.

If that happens, we could see demand begin to filter downwards, affecting prices in the market for family homes.

The alternative – and perhaps even more likely – is that we could see prices begin to rise from the bottom up. We say this because the apartment market never reached the same heights as the housing market throughout 2021. Recent price falls, and a strong retinal market are combining to make buying an apartment a more attractive alternative than renting. In fact, when combined with generous state and federal government first home buyer schemes, there is a strong argument that this is the best time to buy a first home than we’ve seen in some time, despite rising interest rates.

The case against waiting…

There’s also strong reason to believe that, when the market does turn, it’s likely to turn quickly. After the last market slump – between 2017 and 2019 – Sydney property prices rebounded sharply. After falling 7.9% over around 18 months, they shot up 5.7% in the December 2019 quarter alone. And Domain’s data shows that upswings tend to last 33 months and prices rise by 32.7% – or close to one per cent a month.

In short, those who sit around waiting and hoping for the market to turn, often get in too late.

Want more?

If you’re thinking about buying or selling property in the Eastern Suburbs, don’t hesitate to get in touch with our team today.